St. Charles fears impact of Quinn budget proposal

Gov. Pat Quinn has proposed the state bolster its troubled finances by freezing the amount of state income taxes shared with local governments at 2012 levels, which could cost some towns hundreds of thousands of dollars.

Quinn estimates the plan would generate an additional $68 million for the state budget. Because income taxes are disbursed on a per-capita basis, the impact to local budgets would be $5.30 per resident, according to the state.

But the Illinois Municipal League estimates the impact would be more than twice that — a $148 million payday for the state, but an $11.50-per-resident cut to local budgets.

Either way, local leaders say their budgets should not be tapped to pay for the state's shortfalls.

For St. Charles and its 32,974 residents, the municipal league's estimate would mean the city would not get $379,201 that would otherwise be coming to it — or $174,762, using the state's projection. That represents about 0.5 to 1 percent of the city's overall annual expenditures.

Finance Director Chris Minick said losing those funds would mean more cuts. The city has already cut its spending by more than 11 percent, Minick said, compared to 2008 budget levels, by freezing wages for city employees and delaying capital projects.

"We've done a good job of being able to trim back our budget…and live within our means," he said. "It's particularly disheartening to me that that state can't seem to do the same."

While city officials haven't identified exactly what they'll do should they lose those funds – whichever estimate is correct – Minick said he's even more concerned over lost funds beyond 2013 if the state continues to distribute the funds according to Quinn's proposal.

"If it's a half to one percent of our budget in 2013, what would it be by the time fiscal year 2015-16 rolls around?" he said. "Presumably, as economic conditions continue to get better, the state will see more and more income tax revenue, so the reduction to municipalities' (share) would be greater each year."

Illinois' income tax, enacted in 1969, was meant to be a shared venture between the state and local municipalities, said Larry Frang, executive director of the Illinois Municipal League. State and local governments alike felt the effects of any dips or spikes in revenue, he said.

Frang likened Quinn's proposal to a stick-up.

"You can't start having one person rob another when times get tough," he said. "When times get tough, everybody needs to be tightening their belts."

State spokesman Abdon Pallasch said the Local Government Distributive Fund, which collects the municipal share of income tax revenue, is one of 80 funds that is on "auto-pilot," and increases without legislative oversight.

"We think that all these funds, all the transfers out, should be subjected to the same legislative review that other parts of the budget are," Pallasch said. "These, right now, are sort of a protected class that go up every year without legislative review."

He disputed the Illinois Municipal League's projections.

The state budget office estimates a 2.5 percent increase in the local share of income taxes for the fiscal year ending June 30, as well as a 3.7 percent increase the following fiscal year, Pallasch said.

Based on those numbers, capping the amount local municipalities receive at their fiscal year 2012 level — a collective total of just under $1.1 billion — would mean the state would reap an extra $68 million, according to Pallasch.

Frang said that estimate is too conservative. In the nine months of the current fiscal year, actual local income tax revenue is up 7.3 percent, he said, adding that it is statistically unlikely to see sharp declines in the coming three months that would make the state's 2.5 percent estimate accurate.

In fiscal year 2014, Frang said the Municipal League factored an estimated job growth and wage increase to project a 6 percent income tax revenue gain — far above the state's 3.7 percent projection.

That leads him to believe the actual impact of the governor's proposal to be a $148 million decline in local income tax revenue.

"I think it's clear that the bureau of the budget is wrong, but I don't think I can guarantee you that we'll hit my number," Frang said. "But I think it's more likely we'll come closer to my number than anywhere near their number."

Pallasch said the state is comfortable with its projections, that Frang is basing his on unofficial numbers, and "there's more to it than just the rate."

"We can probably quibble over numbers, but really $1 is wrong in terms of taking money to solve the state's problems and creating a precedent," Fowler said. "If you just rip a hole in their (local) budgets, they have nothing to do but go back to local taxpayers to make up the difference."